Canada’s big banks are almost always great investments to own. The “almost always” part of that statement is something that has gotten a lot of attention lately. Some have even gone so far as to suggest that investors should avoid bank stocks altogether during this volatile period.
Contrary to that view, here’s one bank that, despite recent weakness, does hold massive long-term potential.
Meet your next big bank investment
The bank to make you rethink the avoid bank stocks mindset is Toronto-Dominion Bank (TSX:TD). For those that are unfamiliar, TD is the second largest of Canada’s big banks, with both an impressive domestic segment and a growing international arm.
The bank also boasts a wholesale banking segment as well as an investment segment.
TD’s international segment really kicked in during the period after the Great Recession. At that time, TD acquired several smaller regional players and stitched them together into a U.S. branch network.
That branch network now spans from Maine to Florida along the east coast, with TD boasting more branches in the U.S. than it has in Canada.
That stellar growth not only propelled TD into position as one of the top 10 lenders in the U.S. market but also diversified the bank’s revenue stream outside of Canada.
Q2 results are in
TD announced results for the second quarter last week. In that most recent quarter, TD reported income of $3.35 billion, representing a decline over the $3.81 billion reported in the same period last year.
Despite that dip, both the Canadian and U.S. segments continued to show strong growth.
The Canadian segment reported net income of $1,625 million, reflecting an increase of 4%, or $57 million. Turning to the U.S. segment, the bank earned $1,412, which was a 3% improvement over the prior period.
Perhaps most telling was the announcement by TD that it would launch a share-buyback program for up to 30 million of its shares. The repurchase-for-cancellation program works out to approximately 1.6% of the bank’s outstanding shares. Subject to approvals, the buybacks will take place over the course of a year.
Why should you not avoid bank stocks and consider TD
Investing in TD is something that should be seen as a long-term investment. The bank is a well-diversified operation that also boasts a stable and growing quarterly dividend. That dividend has been paid out without fail for well over a century and, as of writing, works out to a yield of 4.91%.
Prospective and current investors should note that despite not announcing a dividend hike last week, as some of its peers did, TD has maintained an annual cadence of those increases for well over a decade. The one exception to that was an imposed moratorium on dividend increases during the pandemic.
TD’s move to cancel the First Horizon deal has left the bank in a well-capitalized position. Apart from the 30 million share buyback recently announced, TD can still seek out another acquisition in the U.S. market.
And as noted above, this is similar to the plan that TD previously executed during the Great Recession, with great success.
In short, TD is a stellar long-term option that appeals to both growth- and income-seeking investors with long-term timelines. Even better, prospective investors looking at TD can scoop up shares of the bank at a discount of approximately 17% over the trailing 12-month period.
In other words, it’s not exactly a great time to avoid bank stocks like TD. If anything, it’s an ideal time to buy the bank for the long haul.
In my opinion, TD should be a core part of a larger, well-diversified, long-term portfolio.
